PAYE & Employer Compliance Solicitors
An HMRC employer compliance review or PAYE investigation can result in substantial assessments for unpaid PAYE, National Insurance, and Class 1A contributions — plus penalties and interest going back years. A solicitor will manage the review and challenge the assessment.
Employers are responsible for operating PAYE correctly — deducting and remitting income tax and National Insurance contributions on employment income, reporting benefits in kind on the P11D, and operating the Construction Industry Scheme (CIS) where applicable. HMRC's employer compliance reviews are targeted at employers believed to be operating PAYE incorrectly — particularly in relation to benefits in kind (company cars, private medical insurance, staff entertainment), off-payroll working arrangements, and the correct classification of workers as employees or self-employed. A solicitor will advise on the employer's obligations, respond to HMRC's enquiries, challenge any incorrect assessment, and negotiate the most favourable settlement.
PAYE & Employer Compliance Issues
Employer compliance reviews — the areas most commonly investigated by HMRC and how a solicitor addresses each one.
PAYE compliance is a significant ongoing employer obligation. HMRC's employer compliance reviews are thorough, cover multiple tax years, and can produce substantial additional liabilities. A solicitor will manage the review, challenge any incorrect assessment, and minimise the financial exposure.
Benefits in kind — P11D obligations and Class 1A NIC disputes
Benefits in kind — company cars, fuel benefit, private medical insurance, non-trivial staff entertainment, living accommodation, and loans to employees — must be reported on the P11D form and Class 1A National Insurance contributions paid by 19 July following the tax year. HMRC's employer compliance review frequently focuses on P11D reporting — identifying benefits that have not been reported, or have been reported at the wrong value. Company car benefit (calculated by reference to the car's list price and CO2 emissions) and fuel benefit are particularly common areas of dispute. A solicitor will review the employer's P11D reporting, challenge HMRC's assessment of omitted or under-reported benefits, and negotiate the settlement of any additional Class 1A NIC liability.
Employee vs self-employed — HMRC worker status disputes
Whether a worker is an employee or self-employed determines how their earnings are taxed — employees are taxed under PAYE with employer and employee National Insurance contributions; self-employed workers are taxed through self-assessment and pay Class 2 and Class 4 NIC only. Where HMRC considers a worker who has been treated as self-employed is actually an employee, it can raise PAYE assessments against the employer for the underpaid PAYE and NIC going back up to 6 years. The worker status assessment involves an analysis of the working arrangements — control, right of substitution, financial risk, mutuality of obligation, and integration into the business. A solicitor will present the evidence that the worker's arrangements support self-employed status and challenge HMRC's reclassification.
Expenses and dispensations — what can be paid tax-free
Employees can be reimbursed certain expenses tax-free — where the expense is incurred wholly, exclusively, and necessarily in the performance of the employment duties. Travel and subsistence, professional subscriptions, and tools and equipment are the most common categories. HMRC challenges expense reimbursements where: the expense has a personal element; the travel is ordinary commuting (not deductible); or the expense is not wholly and exclusively for the duties. Business entertainment (clients, customers, and suppliers) is not deductible for tax purposes and the P11D benefit must be reported for any entertainment meeting the definition. A solicitor will challenge HMRC's disallowance of expenses and negotiate the settlement on any additional PAYE liability.
Construction Industry Scheme — CIS obligations and HMRC reviews
The Construction Industry Scheme (CIS) requires contractors to deduct income tax from payments to subcontractors at source (20% for registered subcontractors, 30% for unregistered). Failure to operate CIS correctly — failing to verify subcontractors, failing to deduct at the correct rate, or failing to submit monthly returns — results in penalties and potential PAYE assessments for the undeducted tax. HMRC's CIS reviews are targeted at construction businesses and focus on whether all subcontractors are registered and whether the correct rates have been applied. A solicitor will review the employer's CIS compliance, identify any exposure, and manage the HMRC review — challenging any assessment that exceeds the actual CIS liability.
PAYE settlement agreements — resolving employer compliance issues
A PAYE Settlement Agreement (PSA) allows an employer to make a single annual payment to HMRC to settle the PAYE and NIC liabilities on minor, irregular, or impractical-to-allocate employee benefits — staff parties, small gifts, and trivial benefits. A PSA removes the need for P11D reporting for the covered items and avoids the benefit being taxed on the employee. HMRC's employer compliance review may reveal items that should have been included in a PSA but were not. A solicitor will advise on whether a PSA is appropriate for the employer's situation, manage the PSA application process, and negotiate the PSA settlement — ensuring the employer's liability is resolved on the most favourable terms.
PAYE penalties and appeals — late payment and late filing
PAYE late payment penalties apply where the employer does not remit PAYE and NIC to HMRC by the due date (19th of the month for monthly payers, 22nd for electronic payment). The penalty rates are: 1% for 1–3 days late, 2% for 4–6 days, 3% for 7–9 days, and 4% for 10 or more days late — with 5% additional penalties for payments more than 6 months late. PAYE late filing penalties apply to employers who do not submit Full Payment Submissions (FPS) on time through RTI. A solicitor will appeal penalties where a reasonable excuse exists — cash-flow emergencies, bank system failures, and HMRC's own processing errors — and negotiate the penalty settlement where the appeal is partially successful.